Abstract

http://ssrn.com/abstract=1670219
 
 

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CEO Education, CEO Turnover, and Firm Performance


Sanjai Bhagat


University of Colorado at Boulder - Department of Finance

Brian J. Bolton


Portland State University - School of Business Administration

Ajay Subramanian


Georgia State University

August 3, 2010


Abstract:     
This paper analyzes the relationship between CEO education, CEO turnover and firm performance. Our primary interest is on the role that CEO education plays in a firm's decision to replace its current CEO, the role that it plays in selecting a new CEO, and on whether CEO education significantly affects performance. We use six main measures of CEO education: whether or not the CEO attended a Top-20 undergraduate school, whether or not the CEO has an MBA, law or masters‟ degree, and whether or not the MBA or law degree is from a Top-20 program. Our study includes more than 14,500 CEO-years and more than 2,600 cases of CEO turnover from 1993-2007.

Our results show that CEO education does not play a large role in the decision by a firm to replace its current CEO; poorly performing CEOs are replaced, regardless of their education. Education, however, does play a significant role in the selection of the replacement CEO; there is a significantly positive correlation between the education levels of new CEOs and those of the CEOs they replace. Further, hiring new CEOs with MBA degrees leads to short-term improvements in operating performance. We, however, do not find a significant systematic relationship between CEO education and long-term firm performance. CEO education does not seem to be an appropriate proxy for CEO ability. Our results lead to the puzzling implication that, while CEO education appears to play an important role in the hiring of CEOs, it does not affect the long-term performance of firms.

Number of Pages in PDF File: 48

Keywords: Manager Ability, CEO Turnover, CEO Education, Firm Performance, Corporate Governance

JEL Classification: G34, J23, J63, M12

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Date posted: September 2, 2010 ; Last revised: November 9, 2010

Suggested Citation

Bhagat, Sanjai and Bolton, Brian J. and Subramanian, Ajay, CEO Education, CEO Turnover, and Firm Performance (August 3, 2010). Available at SSRN: http://ssrn.com/abstract=1670219 or http://dx.doi.org/10.2139/ssrn.1670219

Contact Information

Sanjai Bhagat
University of Colorado at Boulder - Department of Finance ( email )
Campus Box 419
Boulder, CO 80309
United States
303-492-7821 (Phone)
Brian J. Bolton (Contact Author)
Portland State University - School of Business Administration ( email )
Portland, OR 97207-0751
United States
Ajay Subramanian
Georgia State University ( email )
Department of Risk Management and Insurance
P.O. Box 4050
Atlanta, GA 30303
United States
404-413-7483 (Phone)
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